Netflix Stock Pops to All-Time High — But Why?

Netflix shares were up as much as 3.9% in morning trading Tuesday — hitting an all-time peak of $321.61 per share — apparently fueled by a bullish Wall Street analyst raising his 12-month price target on the stock.

Update: Netflix closed at $324.62 per share, up 5% for the day, as broader market indexes also finished higher.

In a research note, MKM Partners managing director Rob Sanderson raised the 12-month price target on Netflix from $285 to $370 per share. “We think investors have growing confidence in (1) the size of opportunity, (2) strength of position and (3) that management knows what they’re doing,” he wrote in the note. MKM reiterated its “buy” rating on Netflix.

Netflix can be a $75 billion market-cap company in five to seven years, according to Sanderson: “We recommend maintaining core positions and taking advantage of any pullbacks.” Currently, Netflix’s market cap is less than $19 billion.

Netflix’s stock has been extremely volatile over the last two years. It plunged dramatically in mid-2011, after the company announced plans to effectively raise rates on streaming customers by splitting off the DVD-by-mail service. The stock recovered earlier this year and is up nearly 250% since the beginning of 2013.

Last week Netflix announced a distribution deal with Swedish cable operator Com Hem, the second agreement with an MSO after the Internet streamer’s deal with Virgin Media in the U.K. Netflix execs say they’d like to reach similar deals with U.S. operators, but American cable companies may be wary about getting into bed with what they perceive as a competitor.

“Integrating with MSOs Virgin (UK) and Com Hem (Sweden) suggest cable op’s are starting to view NFLX as a programmer and a partner that can enhance their competitive advantage in broadband,” Sanderson wrote in the note Tuesday.

In the MKM analyst’s view, Netflix is poised to benefit from long-term shifts in the business. “The economics of entertainment video will be redistributed with the shift to Internet-delivered services,” Sanderson wrote. He added that he doesn’t expect Netflix to hike prices anytime soon, as the company aims to maintain the low $7.99 monthly fee “to drive mass penetration before looking to pricing power/pricing tiers.”

Netflix had 29.8 million U.S. streaming subscribers as of June 30, and 7.8 million internationally. The company is scheduled to report third-quarter earnings Monday, Oct. 21, after market close.

My family is leaving the ever increasing cost of cable and switching to only online content via Roku, Netflix, Amazon Prime and Vudu, Hulu, and the networks own web sites.
Cable is dead, it just doesn’t know it yet.
Netflix making Arrested Development and Derek has moved it to the top of the list on my Roku.
Should Netflix adopt Cables template of creeping prices higher and higher for less content, then Hulu Plus will get my 8$ a month.
I see a future, much like the past, when we will watch CBS NBC and ABC for free over the internet, only we will have to watch the commercials. I already do this on Hulu basic and it is fine, I don’t mind advertising for free content. Once the big three networks realize they no longer have to play ball with the cable companies, creative content and free TV will return to the US.

I think Breaking Bad’s finale ratings on AMC, Vince Gilligan crediting Netflix with the rise in the show’s popularity that resulted in such numbers and extensive media coverage of “the Netflix effect” on quality programming ratings and Breaking Bad in particular likely had an impact on the recent rise in share prices.